Searching for Equilibrium
The Federal Reserve modified its stance yesterday without changing rates. It is not just about how fast the Fed sees itself normalizing monetary policy but also where the level of the equilibrium rate.
Category: Economics
Blame it on the Brits? Fed Points at Brexit
Citing the economic risk of Britain leaving the European Union, Federal Reserve chief Janet Yellen kept interest rates low in an effort to help America’s deteriorating economy.
While several negative economic indicators at home have moved analysts to predict a rate hike would not happen in June, the Fed chair cited the risks of a Brexit for both Americans and people around the world. When asked if the possibility of a Brexit influenced the Fed’s decision to delay its plan on increasing Americans’ borrowing costs, Yellen said it was a factor.
Long-Lasting Headwinds
The US dollar is higher against the major currencies but the Japanese yen and the New Zealand dollar. The dollar fell to new two-year lows against the yen to JPY103.55 before bouncing in the European morning back to JPY104.40.
Now Can We Expected a Slower Tightening Cycle?
The Federal Reserve anticipated a more gradual tightening path going forward. This weighed on the dollar and lifted equities. August Fed funds futures imply less of a chance of a hike next month. It is now consistent with an 8% chance of a hike, which is less than half the probability assigned at the end of last week.
Hopes of Greater Security through Strategic Partnerships
Strategic partnerships are becoming central to the management of international security in the Asia-Pacific region. All the major powers and many of the minor ones have entered into multiple partnerships with both friends and potential strategic rivals.
China, for instance, has cultivated close to 50 strategic partnerships across the region and beyond, with nations as diverse as Afghanistan, Australia and India. By contrast, India has about 20 or so partnerships and Japan around 10.
Japan’s Kuroda and the BOJ are in a Corner
Following today’s FOMC meeting, the central banks of Japan, Switzerland, and the UK meet tomorrow. The SNB will keep its powder dry to be able to respond to the results of the UK referendum if needed. The Bank of England is also on hold.
Are Central Banks Losing Control or Credibility?
More fund managers are preparing for a steep decline in stocks as the Federal Reserve announces whether it will raise interest rates. The Federal Open Market Committee press release, due Wednesday afternoon, is a much-awaited announcement on whether this is the meeting where the Federal Reserve will change monetary policy.
After months of pricing in a low chance of a rate hike, markets reacted sharply last month after several Fed executives gave public speeches and interviews asserting the strength of the American economy and the need to rein in inflation.
Your FOMC Primer
The FOMC meeting later today, with updated economic projections and a press conference, is the key event of the day, even though three other central banks meet over the next 24 hours. Investors should know four things before the FOMC meeting.
OECD Finally Issues Opinion on Brexit Issue
The Organization for Economic Cooperation and Development (OECD) issued a policy paper this week on the matter of Great Britain’s exit from the European Union (EU), often called “Brexit.” According to the OECD, exiting the EU would cause “a major negative shock to the UK economy.” Thus, the organization has strongly warned against Brexit.
